Tesla, Panasonic Cement Their Vow To Build A Gigafactory

Green Tech
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It's official:
Tesla Motors will team up with
Panasonic to build what is shaping up to be the Mother of All Lithium-ion Battery Factories. Or Gigafactory, as Tesla calls it.

The announcement on Thursday says Tesla will be in charge of providing and managing the land, buildings and utilities of the factory. Panasonic, which already is supplying Tesla with battery cells, will put money into buying the equipment for making the cells at the factory, the location of which has yet to be disclosed.

Tesla will do the final assembly of packaging the battery cells into battery packs. The company has built an expertise in designing battery packs and developing the software for managing the batteries' operation.

The announcement has been expected for some time. Elon Musk has talked about working with Panasonic ever since he mentioned the plan to build a super factory during an earnings call last November. It was the same day that Tesla announced an expanded purchase agreement with Panasonic, after Musk had made it known that a shortage of battery cells had crippled its ability to market and deliver cars as quickly as it would've liked.

Musk said building the battery factory is necessary to ensure that the company has a steady, long-term supply that will match Tesla's sales goal well into the future. The carmaker still plans to buy battery cells from Panasonic's factories in Japan.

Batteries are expensive and make up a big chunk of the cost of a car. Tesla and Panasonic hope to drive down the battery cost by improving their manufacturing processes and by producing battery cells and packs in greater volumes.

Tesla plans to roll out its third model, an SUV called Model X, followed by Model 3, which should be its cheapest car yet.

The company also is bullish about making money by selling batteries to homes and businesses for energy storage. Those battery systems could serve as a backup power supply, especially during blackouts, or as a way to manage solar energy generation and use. Musk has talked about adding some design panache to developing new energy storage systems. The company already is a supplier to SolarCity, a solar panel installer. Musk is its chairman.

That trouble in securing enough battery cell supply was a big lesson for Tesla, an upstart electric car maker that is learning how to scale up manufacturing and meet its customers and shareholders' expectations.

The California company also has broken out of the traditional automaker mode by setting up its own retail stores and building charging stations that allow Tesla owners to fill up their cars for free. These moves not only help Tesla sell its cars but also the emerging electric car industry, which still face worries from consumers that they would run out of battery power before finding a charging station, especially during out-of-town trips.

Tesla plans its Gigafactory to be big enough to produce 35 gigawatt hours of cells and 50 gigawatt hours of battery packs by 2020, the company said. The gap would be filled by cells from Panasonic's factories in Japan or other cell suppliers, Musk has said.

It expects the factory to cost $4 billion to $5 billion, with $2 billion coming from Tesla. The Thursday announcement didn't say how much Panasonic will invest in the factory. Japanese newspaper Nikkei reported this week that Panasonic will likely invest $194 million to $291 million initially.